New Jersey Landlords need to be careful with their Accounting Methods

Most American businesses keep track of their charges and receivables using a “first in, first out” method. The central principle of this method, referred to as “FIFO,” is to apply customers’ payments toward their earliest balances first, and then toward their later balances. New Jersey landlords had also accepted the FIFO method of accounting until relatively recently, when the State Supreme Court ordered that eviction complaints follow a specific format, in which tenants’ unpaid charges are specifically set forth in detail.

Using the FIFO method, for example, if a tenant failed to pay rent January and February, the next payments that the tenant did remit would be applied to January and February. That application would certainly create a gap in later months in which the payments were made. In the event that the eviction complaint followed the same methodology, it might appear that the tenant owed rents from March and April (or whatever the most recent months were), when the two missed payments were really from January and February. This method is unfortunately confusing for tenants who may show up to Court with receipts to prove that they paid certain rents, only to find that the receipts that they produced do not refer to the missing payments in question.

Prior to the institution of the revised eviction complaint format, we had found that the best method of proving the balance owed in a trial involves going back to the ledger to determine the last date when the balance owed was $0.00. Then the landlord should add up all the rents that became charged since that date (i.e.; the monthly rent multiplied by number of months). Then the landlord should add up all the receipts that were paid during that same time period, and subtract that number from the amount of rents charged to determine how much was still owed.

Notwithstanding the simplicity of that process, I often wondered how a Court would rule when faced with a situation where the tenant could demonstrate that he or she had no idea which rents were owed, and therefore, could not prepare an adequate defense for trial. Fortunately, I received my answer a few weeks ago, when I was waiting for one of our matters to be reached for trial. From the gallery, in the rear of the Courtroom, I watched as another attorney struggled to demonstrate to the Judge that the unpaid rents set forth in the Complaint, did not refer to the actual months in which the payments were missed, but rather, they referred to the most recent months. The attorney continued her explanation to the Judge with a futile statement about standard accounting processes.

The Judge responded that he was familiar with standard accounting practices, but remarked that they were not adequate to enable the tenant a fair opportunity to prepare his defense. The Judge, accordingly, dismissed that matter, with an instruction to the attorney that she could refile the matter, if she redrafted the complaint in a way that showed the tenant the specific months in which the payments were missed.

In light of the Court’s decision in that matter, we have also began to examine our own matters to make sure that that the statement of unpaid charges properly coincides with the months in which the tenant failed to make those rent payments. In cases where the ledger has multiple entries of missed payments, it is also advisable to include a copy of the ledger in the eviction complaint.

Finally, please note that only certain charges can be included in the complaint for non-payment of rent. Attorney’s fees, late charges and utility charges can only be included if there is a written lease calling those items “additional rent.” Furthermore, even in cases where the lease does call attorney’s fees and late fees “additional rent,” they still could not be included in an eviction complaint where the tenant receives Federal rental assistance (e.g.; Section 8). For other questions regarding landlord tenant matters, please feel free to contact our office.